Non Farm Payrolls Report - Interesting Seasonality Factors

As you may recall, the raw input into the Non Farm Payrolls report is the actual count of jobs which the BLS compiles.

To this number the BLS adds the output of the Birth-Death Model, which is their estimate of Jobs lost and created by new businesses not included in the report.

And finally, there is the 'seasonally adjusted number.' That is a factor which is applied to the actual count plus BD Model to arrive at what might be considered a steady state or deseasonalized number.

Take a look at the chart below. The line in red is the actual number plus BD model. There are wide swings in the number of jobs added or subtracted based on the changes in the seasons. This is how many economic data present themselves.

For purposes of analysis, economists and statisticians use tools to try and take out the 'seasonality' and provide a number that shows what the change would be if the changes caused by seasonal variation are taken out.

The result is the Seasonally Adjusted number, which is the blue line on the chart below.

As you can see in some months the adjustment is to take jobs out of the actual number, and in other months it is to add jobs to that number. Sometimes those adjustments are very large, and in other months rather modest.

I am including the Birth Death model numbers which I also watch each month and compare to the results from past years. There is nothing untoward here, but people will almost certainly ask about it. It is important to remember that these numbers are added into the actual number BEFORE the seasonal adjustment is applied.

The next chart shows the actual seasonality factor which has been used for a given month. It is just a simple mathematical calculation to show the change which had been applied to the actual number plus BD model input.

I include the results from a number of past years so I can see how the factor used this year compares to factors which have been used by the BLS in other years.

The result is shown below. The current year is graphed with red lines with open circles at the data points.

I think it is interesting that this year is drifting out of the normal factor range. This means that BLS is adjusting the actual numbers to a greater degree than they might have ordinarily done in the past. The adjustment factor is not large, but remember that it is being applied to a raw number of millions of jobs.

Here is another view of the relationship between the seasonally adjusted and non seasonally adjusted total numbers.

It is also important to remember that the BLS normally revises the prior two months whenever they issue a new estimate, so the factors we see on this chart for 2013 may be changed over the next couple of reports.

However I thought it was a trend worth watching. I had been wondering if the BLS would use a 'conservative' approach in their 'headline announcement' this month which might reflect the impact of sequestration, and provide some context for President Obama's budget which he is just releasing.

Is this too Machiavellian? Perhaps. But I like to watch the reports and see if any trends appear. And you know how adverse I am to drawing broad conclusions from just a few data points. I think the headline numbers are mostly useful for news sound bites and Wall Street price shenanigans. The truth is in the trends, and I prefer a nine month moving average.

In case you were wondering, here is what the Jobs numbers would look like if there was no Birth-Death model.  I subtract the BD numbers out after applying the seasonality factor to them.

As you can see, the data is rather 'noisy' to say the least.

Just something to think about.  I do these calculations every month for the NFP. I will keep an eye on them in the future and advise you of anything interesting.

And as a reminder, one must look at other data points outside the Non-Farm Payrolls report to get a clearer picture of what is going on.

One of my favorite additional reports is the Labor Participation Rate. This represents the actual number of potential workers being counted as a percentage of all the people. This is important because the statisticians tend to discard people as potential workers if they have been unemployed over a certain period of time.

 This can make one of the other headline numbers, the unemployment rate, look much better than it really is during severe downturns with abnormally long periods of unemployment. And this is what we are in today.

Since this is budget and sequester season in Beltway Land I am paying particular attention to any numbers which they show. Numbers paint pictures, and where there are large adjustments there is latitude, and often liberties taken with them. This is the human condition.

Today's Non-Farm Payrolls Report - The Good News, Bad News - Unadjusted Unemployment at 13%

Today's Non-Farm Payrolls report was encouraging despite the downward revision from last month's headline grabbing number, which in part helped make up today's headline grabbing number.

The seasonality adjustment used in this number was out of the normal bounds from past seasonality adjustments. And as one might have anticipated, the Birth Death model added its customary large number of estimated (imaginary) jobs into the mix.

As you know I prefer to look at the trends, rather than the month to month numbers which can be used to manage perception in the market and the public.

The overall trend shows that the US is not faring as badly as if it might have, at least in the short term, under an austerity regime such as that being followed in Europe.

The most encouraging statistics are the steady although somewhat anemic jobs growth, and the upturn, finally, in average pay. I could not find current median pay numbers in a chart, and this is what is most interesting to me as you know.

The Labor Participation Rate continues its decline.  It is a much more significant number than the 'headline' unemployment rate which fluctuates in whom it decides to count as employment-seeking.  

According to Bloomberg if the Labor Participation Rate was maintained as steady from before the financial collapse, and 'discouraged workers were not eliminated, the current unemployment rate in the US would be a little north of 13%.  But as workers get discouraged the government stops counting them as employment seeking, and the Labor Participation Rate falls.

And finally there is Real Disposable Personal Income Per Capita, which is as close to median as I could get.  And just for comparison, a chart showing Total Personal Disposable Income from 1921 to 1939, including the secondary recession of 1937 which was due to a policy error in premature Fed tightening from a fear of inflation. 

I think we learned in the 1930's that austerity after a credit bubble induced financial collapse is a destabilizing influence on civil governments.  Or at least that was the case in much of the world back then.  We seem to have forgotten quite a few lessons from history about regulation, reform, and the consequences of extremes in wealth inequality.

There is little doubt that if the nascent recovery falters, the 'sequester' will be blamed, and not the lack of reform and safeguards in the financial sector which caused the most recent financial crisis in the first place, although it was most certainly a key player in the tech bubble and collapse as well. 

One can only speculate that if genuine reform, including restraints on rampant deregulation, had been enacted after the stock market excess of the Tech Bubble, would the people and the world have been spared the Financial Collapse of 2008?  And what is yet to come, most likely out of Europe or China?

Pictures From A Non-Farm Payrolls Report

I did not see anything untoward in any of the factors which I check, including the seasonality adjustment and the birth-death model adjustment.

The unemployment rate is a fairly useless measure, as it continues to improve by dropping people from the labor force. The Labor Participation Rate is much more relevent. This shows a continuing decline to the lowest level in three decades.

The median wage is also a critical indicator too often overlooked.

The bottom line is that the US is continuing in a weak and somewhat fragile recovery following a financial catastrophe of a magnitude not seen since the late 1920's.  The result could have been much worse in the US.   If Hoover's principles had been applied once again to the US economy, things would have been very dark this time around indeed.  People overlook this.  They might still get another chance to see how destructive economic malpractice can be.  Europe may take a run at it.   The UK appears to be willing to have a go.

The current situation is not enhanced by the deadlock in Washington, particularly with the hard line obstructionism in Congress. We may as well call it that, because that is what it is.

Efficient market theory is a fraud, and further deregulation is little more than a license to steal. It is no coincidence that the gap between the wealthy few and the public is at levels not seen since the last Great Depression. This is the mark of a very unhealthy social economy, with a few big winners and lots of losers, a kleptocracy based not on merit but on position, power, and payoffs.  These distortions born of the will to power are always doomed to failure, and sometimes spectacular.

The corruption in the system acts like a huge tax on the real economy, diverting resources, labor, and investment away from productive activity and towards monopolies, cartels, and the fraudulent accumulation of wealth through the manipulation of financial assets, making money from money.

There will be no sustainable recovery until there is substantial, genuine reform of the financial and political systems, both of which have been tainted by big money and corporate power promoting a very narrow and self-servingly destructive agenda.

Agree or not, things will continue to get worse, even if in a long, dwindling cycle of decay and despair, until change comes. And it will come, one way or the other. And the longer it takes, the more volatile the outcome will be.

The Non-Farm Payrolls Report: Air Brushing History - Nominal Work Force for Nominal GDP

Back in Stalinist Russia, they had whole departments of people that were responsible for rewriting history and documents in order to support the latest Party lines.

When a particular person fell out of favor, for example, they not only altered the documents, but even went so far as to air brush them out of important historical photographs.

Today the US reported a remarkably high Non-Farm Payrolls number, well in excess of even the most optimistic estimates. 243,000 jobs added, and unemployment has dropped to only 8.3 percent. Isn't that good news indeed.

If one tracks the data closely, and keeps their own copies of the records, what we see instead are revisions, sometimes going back as far as ten years, that most greatly affect the 'seasonally adjusted' numbers, but also affect the raw numbers as well.

The Obama Administration, as well as the previous Administration, have been going back and tinkering with history, rewriting the numbers here and there, in most cases 'rolling jobs forward' to the current months to make the current headlines look better.

The BLS keeps the digital copies of this and they are duly adjusted of course. But what was surprising in this latest round is that for the first time in my memory they went back and adjusted the Birth-Deal Model, which are imaginary jobs in the first place! And on the web site that I usually check they have stopped providing all the historical data, limiting it to what looks like a year or two of data.

What can one do when the statistics are questionable like this? One common touchstone for those who rely on data is to compare one set of numbers with another, or even with 'real things.' If the sales numbers look great, but unsold inventory is piling up, chances are pretty good that somewhere those sales reports might be disconnected from reality.

One real check I prefer is the Labor Participation Rate. The Census is pretty good about counting the number of people and estimating their growth within some reasonable statistical error. And people do not tend to disappear in large numbers, at least not yet.

Labor Participation is simply the number of people who are working or are unemployed as a percentage of the civilian non-institutionalized population over the age of 16, or simply number of people of working age who are not in prison, etc.

So if the number of people working is increasing and the number of unemployed are decreasing the participation rate *should be increasing* one would think, given the relatively stable growth of the population.

But we instead see that the Labor Participation Rate continues to decline. I am sure the spokesmodels will find some way to try to gloss over this.

Note: The spokemodels and the uninformed parrots quite predictably are tut-tutting this using misdirection by saying that the most recent drop for January alone is attributable to a revision in the Labor Force, the denominator in this case, by the Census Bureau. And I accept that. No problem. But my point again is not to look at a single month, but at the trend, even for this. And from a technical standpoint, the trend here undeniably 'blows.'

If the Fed can target a Nominal GDP, that is, economic growth targets that do not care how much is real and how much is paper manipulation, then I am sure it is only fair for the government to target a Nominal Work Force.

As you know, I do not like to look at these monthly numbers in the first, place, but they are integral to the Wall Street shell game, and the politicians love to play it for the headlines as well.

A more rational approach is to watch the trending average over some reasonable period of time, and to look at multiple sources of data, given the propensity for politicians to stick their fingers in the process.

The problem I have with painting the tape, accounting fraud, and the statistical manipulation of the numbers is that these numbers are the foundation for serious policy decisions. Making January 'look good' is going to make it all the more difficult to take the appropriate political steps to reform the economy and get it working again.

But the Yanks are notoriously short term oriented in their thinking. And this is an election year, and emotions are running high.

I cannot help but think that if the government is finally able to fully digitize money and other assets, all this airbrushing can become so much more simple. Just ask the customers of MF Global. One day you own Treasuries, and even solid bars of gold and silver in your own name, and the next day, poof, they're vaporized. Sorry don't know where they went. Go stand over there in line by the Lost and Found and see what happens.

And so I think we are not in Kansas anymore, Toto. It is looking more like Moscow on the Potomac every day.

Here is a comparison of the Seasonally Adjusted Jobs Numbers before and after the Revisions. Keep in mind that each square represents 100,000 jobs, so even slight changes make a big difference in the headline number which just shows the month over month change.

Again, the point is not that there is some conspiracy, which is how many easily dismiss this, especially the uninformed who want to appear to be 'sophisticates.' Rather it is mean to show that one months data is relatively useless and often misleading, and subject to significant revisions sometimes much later. It is the TREND that matters.

The US September Non-Farm Payrolls Report in Pictures

A remarkably 'clean' report with the only anomalies being a lower than normal Birth-Death imaginary jobs adjustment from the BLS, which subtracted 43,000 jobs, and a seasonality adjustment that appeared a little on the high side.

An exogenous factor was the addition of 45,000 striking telecommunication workers who returned to their jobs. So the organic jobs growth was weak.

"Nonfarm payroll employment edged up by 103,000 in September, and the unemployment rate held at 9.1 percent, the U.S. Bureau of Labor Statistics reported today. The increase in employment partially reflected the return to payrolls of about 45,000 telecommunications workers who had been on strike in August. Government employment continued to trend down."

The jobs recovery is there, but very nascent and probably fragile. GDP will tell us much more.

Pictures From a Non-Farm Payrolls Report - There Is No Such Thing As 'Free Trade'

A weak report, but not as tragically dramatic as the silly revisions higher that preceded it based on the ephemeral ADP report.

Traders and politicians like the volatility that emotions bring to the decision making process. Jolting the herd from here to there serves to distract them while moving them along in the desired direction.

The recovery is weak, returning to the weak job growth that was evident prior to the crash of 2008, within the bounds of 2005-2006 for those wearing their Bush goggles.  The economy is sick, and could possibly take a turn for the worse. It badly needs a structural reworking, and unfortunately that discussion is not even on the table. The monied interests are setting the agendas and shaping the news.

Simple short term stimulus will not 'fix it,' and fiscal austerity is snake oil from the same con men and grifters that brought you the financial crisis with a sick, unbalanced economy on its way to third world status.   What is the 'industrial policy' of the US.  I would submit that it is still deregulation, the deification of ideal markets that do not exist, and the shifting of more capital to the few in hopes of a trickle down effect that never really occurs.  The funds are used to further bind the real economy with artificial impediments and rents.

From budget surplus to death spiral in a little more than a decade. Gee, where did we go wrong?

You all know what needs to be done.  But there is not nearly enough to slake the greed of the powerful.  So down this road we must go.

Here's one for those who favor giving tax breaks on offshore funds for multinationals who use accounting gimmicks and loopholes to realize their income in tax haven countries. The program allows corporations like GE to repatriate their stashed cash on the cheap, and pay it out in tax free dividends to wealthy shareholders and bonuses for their executives. 

It is a powerful incentive to send even more employment and economic activity offshore, and for countries to engage in state directed mercantilism.  There are no Porterian 'natural competitive advantages' involved, but there is a strong artificial disincentive to allow domestic consumption and advancement of the mercantilist's own middle class.  There is, at the end of the day, the least common denominator of the health and freedom of the many as the unifying corporate objective, and the principle of one world government.

Trickle down is a canard. Globalization and 'free trade' is a means of beating down all independent public policy and local sovereignty.  There is no purely objective macroeconomics without major policy assumptions as to the public 'good.'  Naturally efficient and rational markets are the economic equivalent of  Piltdown Man.

And there is no such thing as sustainable 'free trade' between independent political entities under fiat currency regimes, without assuming a perfectly rational system run by angels.   The game is rigged and the regulators and politicians are bought, always and everywhere, under this type of artificial construct, with a nationless oligarchy as its ultimate objective.

About the Non-Farm Payrolls and the Birth-Death Model - Credibility Trap

There were some 'screaming headines' at some blogs this morning about the BLS Birth Death Model, aka the 'imaginary jobs report, reaching some new heights, or lows if you will, of perfidy in misstating jobs growth with a reading of 206,000 imaginary jobs added.

In fact the number was in line if not historically a bit low for a May adjustment. It showed the type of seasonal hiring one might expect for the beginning of summer.

The seasonality factor was also very much in line.

I give the government very little credit on its statistical reporting, and have been a strong critic for many years, and take a back seat on debunking Washingon to no one. But there was nothing particularly unusual in this month's report from a statistical reporting standpoint.

It was bad enough on its own. The recovery has never really gained any organic traction and for reasons that I have cited repeatedly.

I have deseasonalized and backed out the imaginary jobs for each month, and posted what the monthly jobs number would look like without them as shown below. It's a choppy picture even with the seasonality factor to provide some smoothing.

This is why it is advisable to watch a moving nine month average. And I also greatly prefer to watch the changes in median wage, which is probably as much or more important than the actual jobs added. The recovery will not become organic and sustainable until people receive a living wage, able to buy a lifestyle consistent with a democratic republic based on their labor without onerous rents from debt.

This is not economic theory; this is simple common sense. If you want to have a consumer based economy, you cannot debilitate the consumers until they become serfs, because they one has obtained a different form of governance. Unless of course one can persuade the many to love their servitude and think hell a heaven.

The public policy argument revolves around the relationship between the distribution of power, and therefore the accumulation of economic power, as it always does throughout history. That is another matter. I am treating the economic argument and prognosis.

As for employment growth, the longer term 'trend' has not yet turned lower, and seems consistent with a stagflationary outlook. It is obviously in danger of rolling over, but it has not done so just yet.

America had been adding jobs for over twenty years with stagnant wage growth. And this was a result of the partnership between corporate America and the wealthy few with the government policy makers, especially including the Greenspan Federal Reserve. Warren Buffett called it a class war and there is no need to guess which class controls the discussion through the concentration of ownership in the mainstream media. The public cannot even mount a serious reform effort without it being quickly co-opted and used against their interests by a well-heeled propaganda machine.

As Simon Johnson famously observed, there was an economic coup d'etat in the States and it is still having its way with the public and much of the world at large. The financiers have breached the walls, and are sacking and looting the city. Neo-liberalism is little more than a resurgence of the corporatism of the earlier twentieth century, with the jackboots more selectively deployed overseas, at least for now.

And the global reaction against the Anglo-American banking cartel, and their infamous economic hitmen, is the substance of the ongoing currency war, the long standing struggle against colonialism. It is remarkable how with all the change, nothing of substance really changes, at least in regards to human behaviour.

A structural reform of the system is what is required, not short term stimulus or austerity at least for now. And in particular not austerity or more tax cuts for the wealthy which is the hallmark of an intellectually bankrupt theory.

The US economy is severely distorted after years of managerial abuse with an outsized financial sector and a bias towards domestic jobs destruction through an abandonment of long term public policy decisions and investments in favor of short term corporate profits and the public be damned.

And there is no reform because the political administration of the system and those who observe and report on it has been generally captured and corrupted, and is stuck in a credibility trap.

About the Markets and That Orwellian Non Farm Payrolls Report...

The weather ate the recovery.

Now we know why the Wall Street demimonde had been pimping the unemployment number as 'the key number to watch' as compared to actual jobs added earlier this week.  Although at the time they never really said why.

The weather was too bad for people to go to work, but it didn't matter when it came to registering for unemployment benefits. And over 500,000 unemployed people apparently disappeared in snow drifts, and are no longer counted in the labor force, thereby improving the percentage of remaining people who do not have jobs.   It's a shrinking denominator thing.

So, there are plenty of new jobs out there. The people just could not get to them because of the snow.

Even J. Bradford DeLong,  stalwart Democonomist from Berkley, was a little put out by this report.

"I want a trained professional to analyze this. It is not unusual for the series to do something odd around Christmastide. It is not unusual for the series to diverge. Not this much."

And Brad is not the overly fussy sort, because a few years ago he said that Alan Greenspan had never made a policy decision with which he disagreed.

The trained professionals trotted out on financial television say that this means that the recovery is here. Wait until you see next month's numbers. Yada-yada. And it is time to buy stocks.

Here is my own trained professional opinion of how to analyze this report, and Obama's economic policies in general.   We can't stop here. This is bat country!

O tempora. O mores. O Bernanke. O Bama.

From the Cafe commentary on 2 Feb:

"Now it is fairly well known that the unemployment rate is a less important metric, since people stop being counted as unemployed when no longer receiving unemployment benefits, or when they take a menial low paying job. And in a prolonged downturn you can therefore have improvements in the unemployment rate without any real improvement in overall unemployment like the labor participation rate and the median wage, which are the key indicators of a sustainable recovery.

So it makes me wonder what antics the government and the pigmen might have up their sleeve to rattle the swill bucket for mom and pop to get back into stocks, and most likely once again at a top."

Here is another trained professional opinion from another era:

"...there must be an end to a conduct in banking and in business which too often has given to a sacred trust the likeness of callous and selfish wrongdoing. Small wonder that confidence languishes, for it thrives only on honesty, on honor, on the sacredness of obligations, on faithful protection, and on unselfish performance; without them it cannot live. Restoration calls, however, not for changes in ethics alone. This nation is asking for action, and action now."

Franklin Delano Roosevelt, First Inaugural Address, 1933

Miss In US Non-Farm Payrolls Number 39,000 Vs.150,000 Expected - Unemployment Up to 9.8%

Reality briefly penetrated the fog of appearance this morning as US Non-Farm Payrolls came in at 39,000, a significant miss from the expected 150,000. Unemployment ticked up higher from 9.5% to 9.8%.

An analysis of the data showed a slight indication that the recovery has stuttered and stopped, but it will take a few more months data to confirm this.

The adjustments seems to dampen the potential headline number but are within bounds of the prior six years. The Birth Death Model actually came in negative which was a bit of an outlier but certainly a refreshing nod to reality.

Looking at the historical Oct-Nov growth in the unadjusted numbers for the past six years shows a clear downward trend from the high in November 2005, with the low coming in November 2008. The growth as it stands in 2010 is roughly the same as it was in 2004, although the 2010 numbers will likely be revised in the next two reports.

Stocks and the Dollar initially plunged on the news while gold rallied threatening to take out psychological resistance at 1400. I guess we now know why gold and silver were obviously hit by sharp manipulative selling yesterday, in order to take the prices down below breakout levels. Be on watch for shenanigans in the markets today, especially the SP futures markets.

There can be no sustained economic recovery until the median wage and employment improve and this requires specific reforms and programs to repair the damage caused by twenty years of irresponsible monetary, regulatory, and fiscal policy and a growing imbalance in the balance sheets of the middle class. Repairing the status quo merely restores the unsustainable.

The Fed's approach to quantitative easing is nothing more than an adjunct to the trickle down, supply-side approach. Provide money to the banks and the people will borrow; provide subsidies and tax cuts to those who have the most already and the condition of the many will improve. Trickle down, supply side, and efficient markets hypothesis are at best mistaken economic theories, and at worst coldly calculated propaganda by the same people who co-opted the political process and brought forward the control frauds that led to the financial crisis.